How Does NRI trade in the Indian Stock Market?

Non-resident Indians (NRIs) have rights in India like resident Indians in many respects. Of course, they need to go through a more regulated system and greater compliance since they are based overseas but investing in the markets is certainly possible for NRIs. The Indian stock market has been attracting many NRI investors in recent years, who can invest in the Indian stock market as per the rules set by the Foreign Exchange Management Act (FEMA).

Who is a NRI?

According to FEMA, “an NRI is a person resident outside India who is either a citizen of India or a person of Indian origin (PIO)".

As per taxation norms, an NRI is a person who does not satisfy these two conditions:

  • If a person is in India for 182 days or more during the financial year
  • If a person is in India for a minimum of 365 days during the previous four years that year and at least 60 days in that year.

The way to invest

The Portfolio Investment Scheme (PIS) allows NRIs to invest in the Indian stock market, under repatriation or non-repatriation basis, through a registered broker. PIS-enabled NRI accounts are used for trading and investment in India.

The Portfolio Investment Scheme (PIS) allows NRIs to invest in the Indian stock market, under repatriation or non-repatriation basis, through a registered broker. PIS-enabled NRI accounts are used for trading and investment in India.

The PIS account holds the investment amount of the NRI. The purchases are directly debited from this account, and the sale proceeds are credited to the account. The PIS permission letter is required for opening a demat and trading account.

Trading and Demat Account

A trading account enables the NRI to carry out sales and purchase transactions in the stock market, and the demat account is to hold the shares in an electronic form. Both these accounts are to be linked to PIS-enabled NRE (Non-Resident External) account or NRO (Non-Resident Ordinary) account.

Read More Here: Difference Between NRE and NRO Account

How the actual trading happens for a NRI?

For resident Indians and for NRIs, the actual buying and selling process is the same. There are a couple of things to consider, though. NRIs, for example, are barred from investing in certain stocks, and the NRI must consult with the broker about this. Any breach of this negative list would result in steep penalties. The trading account gets credited whenever the NRI allocates funds from the NRE or NRO account to the broker. When the actual transaction is made, the broker sends the contract note to the NRI and the PINS bank for debit authorization simultaneously. Then the PINS bank will debit or credit the NRI's PINS account accordingly.

Points to remember

1. Intra-day trading is not permitted for NRIs, therefore they must always opt for delivery based transactions.

2. Be careful to avoid investment in prohibited sectors as they may bring steep penalties.

3. Make sure to reconcile the demat account balance with bank balance.

4. Banks will levy associated charges with PIS, demat and trading accounts.

5. Trading will be carried out via brokers so there will be brokerage charges involved.

Conclusion

The Indian stock market welcomes investment from NRIs. An NRI can trade in the Indian stock market in a hassle-free way and reap the benefits of a rising economy by adhering to these basic rules and regulations.

Open Demat Account at IIFL